InnOvation Capital & Management, LLC
IntelDigest
LAW – POLICY – FINANCE – MARKETS
INFORMATION FOR THE ENTERPRISE AND INVESTOR
SEPTEMBER 6 , 2017
Contact Richard Power with comments or questions. IntelDigest is intended for the use of our clients and colleagues. Material may not be reproduced, forwarded or shared without express permission.
We continue to discuss short-term investment prospects in this issue of IntelDigest. We expect that the equity markets will continue to “melt up” in these last few months of the year, before beginning a “melt down” by next year.
As reported in earlier issues, we believe that the single most important factor supporting stocks is Interest Rates….
While ultra-low rates have done immense damage to fixed-income investors over the last several years, investors in equities have done very well. There have simply been no easy options for investors, so they have invested heavily in stocks and stock funds …..
There is no chance of large or frequent increases in interest rates at any time in the near future. So, we expect that stocks will continue to be the “only game in town” for the remainder of this year.
We will concentrate on the “melt up” over the next few weeks, discussing opportunities for gain in the short-term. Later in the year, we will turn to the reasons for the expected “melt down” to come, and how to protect ourselves from that downturn. For now, we will stay invested, and pay attention to our Stop Losses.
Opportunities for Gain
Where can one make new investments at this late stage of the game? We have been concentrating on a few sectors:
* Industrial and Precious Metals
* Agricultural Land
* Pipelines and Refining
* Clean Energy
* Japan
* Defense Spending
* Data and Networking
Industrial and Precious Metals
Improvement in the global economy has created an uptrend in most commodities, including industrial metals. The price of copper has risen by 50% in the last year. Prices of nickel, zinc, palladium, and others have also been in an upswing.
Rare Earth Minerals and similar strategic metals have also risen. These elements are fundamental components in many electronics products and military systems, and there is a geopolitical angle here. Most of these metals are found in China. If fighting breaks out over North Korea, or if there is a trade war with China, the prices of such metals will rocket higher.
Precious Metals, such as Gold, Silver, and Platinum, have been rising steadily against most currencies in recent years. The current slide of the US Dollar has brought Gold close to a 5-year high.
Agricultural Land
Farmland continues to get more and more expensive. Higher land values have been supported by ultra-low interest rates, as well as increases in farm earnings and productivity.
There is something else going on with American farmland. Farm production is frequently being bought up by foreign companies and sovereign nations. Obviously, this involves the production of food for export to those countries. From another viewpoint, this is a way for those countries to import water, i.e., if they don’t have enough water at home to produce enough food (as in Saudi Arabia), buying farmland or farm production in the U.S. achieves the same goal.
Pipelines and Refining
The price of crude oil dropped from $100/barrel in mid-2014 to $30/barrel in the span of 18 months, and now hovers in the high-$40s. Although oil companies represent good long-term investments, current crude oil prices are likely to stay put for the next couple of years (absent a major outbreak of war).
But, there is still a constant demand for gasoline, especially in the U.S. Pipelines are always in use and in demand, and represent a good opportunity for gain, plus some of the highest yields available in the market place. Refiners can actually have higher profits when the price of crude is low … the spread between the prices which they can charge for gasoline and their lower costs of crude oil represents increased profit for refiners.
Clean Energy
Despite Donald Trump’s promise to “bring back Coal” (that is really not happening), the economics for Clean Energy, such as solar and wind, continue to improve steadily. The use of Clean Energy grows in the U.S., but more so in other parts of the world, such as China.
Japan
After two “lost decades” which began in the early-1990s, the Japanese economy is finally growing again. Most Japanese companies lost more than 70% of their value from 1990-2009. However, many companies have doubled since the depths of the Financial Crisis of 2007-2008, partially-aided by actions of Prime Minister Abe and the central bank.
Growth in domestic spending and business capital spending is helping to lift the economy and large-cap companies, and smaller companies are expected to benefit in the coming years.
Defense Spending
One of the few initiatives which the Trump Administration and the Republican-controlled Congress are likely to push through will be a substantial increase in Defense Spending. We can expect more than $50 Billion in additional spending over the next few years.
Data and Networking
We will present a discussion of Autonomous Vehicles in a later edition of IntelDigest. This is just one area where the market continues to grow for greater computer power, faster speeds, more interconnectivity. The Internet of Things (IoT) makes communication among devices more ubiquitous. More millions of people each year adopt electronic devices and digital platforms.
Companies which provide the networking connections and data storage necessary to run each of these sectors should continue to grow.
More next week …..